JavaScript disabled. Please enable JavaScript to use My News, My Clippings, My Comments and user settings.

If you have trouble accessing our login form below, you can go to our login page.

If you have trouble accessing our login form below, you can go to our login page.

More small businesses must fall: debt expert

Falling profits across the small business sector have resulted in companies struggling to pay their bills and many to keep trading while insolvent, according to a major debt collection agency.

A briefing paper released by Prushka Fast Debt Recovery, which acts for more than 45,000 clients in Australia - the bulk of which are small businesses - shows Prushka’s debt collection levels have fallen 15 per cent year-on-year, despite increased client numbers.

Prushka has noted a 40 per cent year-on-year rise in statutory demands — the first step in the process of declaring a debtor insolvent — in order to force some payment of an outstanding debt.

Such is the financial stress on clients, the majority are unwilling to follow through with liquidation procedures after issuing a statutory demand, due to the costs involved.

‘‘The reason they’re reluctant to do that is it costs between $4000 and $5000 and they’re feeling is the creditor is insolvent anyhow,’’ said said Prushka chief executive Roger Mendelson.

‘‘We’re definitely finding that there’s a lot of insolvent companies that should be dead and wound up, but they’re still trading.’’

Prushka warns the data is the ‘‘canary in the coal mine’’ for the economy, as it demonstrates that cautious businesses and households are keeping their hands in their pockets for longer than usual before paying debts.

‘‘Where the real issue is is business-to-business, where businesses are putting a lot more pressure on supplier to cut margins to come up with good prices,’’ Mr Mendelson said.

‘‘The turnover is also down but more importantly the profit margin is down so the jobs are getting a lot skinnier from the suppliers’ point of view.’’

According to Mr Mendelson, in particular danger were ventures that have a low number of invoices of high value, such as construction companies.

‘‘They only need one or two customers to fall over and that can have an impact right down the line,’’ Mr Mendelson said.

The briefing paper also found that there had been an increase in clients asking for recovered funds to be released earlier, and that many businesses were disputing debts purely as a deferral tactic.

It also found that businesses across the board were moving away from growth plans to focus on just surviving.

Mr Mendelson predicted the following 12 months would be ‘‘very flat’’.

‘‘I think businesses are getting better - they’re getting leaner and meaner. But there comes a time when consumers get out and start spending again.’’

6 comments so far

  • Business models are largely broken in Australia. Wages are too high & working conditions way too generous for an economy that has all but stalled. We simply paid ourselves too much during the boom and now we are stuck with these high wages. It is not even remotely sustainable. The carnage will be of biblical proportions. Small businesses are going broke in droves. These jobs will be lost forever. Many , many people I know in small business say never again. It is simply not worth the hassle. Times are incredibly tough and once you add in the python squeeze from dreadful policies like Fairwork and you have a recipe for disaster. Maybe we can all get a job with the public sector or maybe in one of the heavily subsidised industries? Who know's we may even get a seat on the UN, that may help struggling small business owners in some way.

    Commenter
    Brisbane Bear
    Location
    Brisbane
    Date and time
    September 26, 2012, 11:49AM
    • The problem is that prices for everything followed the wages.
      One can not reduce the wages now without reduction in cost of living.

      Rudolf

      Commenter
      Rudolf
      Date and time
      September 26, 2012, 1:54PM
    • Reducing wages is impossible. It wont be done in a voluntary fashion. People are going to lose their jobs in very large numbers. That's when the cost of living is going to be most brutal. Prices will drop in time but we have to go thru all the unnecessary pain first.

      Commenter
      Brisbane Bear
      Location
      Brisbane
      Date and time
      September 26, 2012, 2:23PM
  • I blame the madness property prices and rents. So much money is wasted on shop rent, housing rent and mortgage payments on property that is way overpriced.Property is propbably overpriced by 70% or more.

    Commenter
    Ted
    Date and time
    September 26, 2012, 5:13PM
    • Business is as bad as I've seen since the early 90's. Most of my suppliers and customers are down 40% or more on turnover with margins getting smaller. A lot of owners are in their 50's, 60's or 70's. I expect to see many businesses exiting before Christmas. The exchange rate, wages and conditions as well as compliance costs are the main factors.

      Commenter
      JohnA
      Date and time
      September 26, 2012, 6:07PM
      • In 1963 The Nationa Geographic Magazine shocked us with a Toyota Corolla advertisement where the Buick had always been. Detroit ignored it and kept making big cars. The ride of technology in the 80's saw international service companies using ever increasing "3rd World" staff and retrenching "1st world" whilst all the time a relentless polarization of wealth allowed finance companies and banks to lend ever more to people increasingly less able to repay the debts. Nobody took much notice. Manufacturers followed the path of pittance cost labour in countries where taxes were low so governments did not educate or health care their people. We all purchased the cheap goods. Now a vast slab of the world is catching up on the caucasian 200 years of planet exploitation and people are decrying the workers wages as the culprit. Those with wealth are not spending any more than those without wealth.So the movement of money is as per our childhood game of monopoly when it is ending, all the money in one corner of the board as it happens.We seem to have forgotten why we even created that life based game. China will need another fifty years of middle class product consumption to even approach the standard of materialism it desires, India, Africa, South America, all await in the wings. We are merely in a marathon "drink stop" and we should be concentrating on the next best step.

        Commenter
        Wayne Thompson
        Location
        Seaford Victoria
        Date and time
        September 27, 2012, 2:17PM

        Make a comment

        You are logged in as [Logout]

        All information entered below may be published.

        Error: Please enter your screen name.

        Error: Your Screen Name must be less than 255 characters.

        Error: Your Location must be less than 255 characters.

        Error: Please enter your comment.

        Error: Your Message must be less than 300 words.

        Post to

        You need to have read and accepted the Conditions of Use.

        Thank you

        Your comment has been submitted for approval.

        Comments are moderated and are generally published if they are on-topic and not abusive.

        Featured advertisers
        Small Biz newsletter signup

        Small Biz newsletter signup Small Biz news delivered to your inbox twice-weekly.

        Sign up now